NEITHER THE GUTS NOR THE DESIRE

16 comments

Posted on 6th May 2013 by Administrator in Economy |Politics |Social Issues

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You can be sure Paul Krugman won’t be writing an article about the $23 trillion unfunded Social Security liability. That’s just a rounding error for a intellectually bankrupt Keynesian douchebag. As Bruce points out, no one in Washington DC or in the MSM will put forth a plan to save SS. They’ll let future generations figure it out when it implodes. The $23 trillion will rise rapidly after the SSDI program runs out of money in 2015 and the SS program starts paying for those bad backs and depression. The illegal immigrants will be given credit for SS taxes previously withheld when they are legalized. If the generations graduating high school today understood math, they’d be really mad. They will fund their parents retirements but be left with a flaming bag of shit when it’s their turn.

SS Report Due Out This Week

 
Bruce Krasting's picture

Submitted by Bruce Krasting on 05/06/2013 07:06 -0400

The Social Security Trust Fund annual report to Congress is due out this week. It will be discussed in the Press for a few days. Some of the things that will come up:

 

- The NPV of the unfunded liability will go up by approximately $2 trillion, to $23 trillion. Every year this horrific number is discussed, and then ignored. What does this number mean? The 2012 increase in new liabilities is double the reported increase in federal debt. If this number were added to the existing debt, it would bring the total nut the country faces to $39T – 250% of GDP.

The problem is that the calculation measures the present cost of the infinite future. Who cares about something that might go wrong 50+ years from now? Hopefully, the scary NPV number to be released will focus attention on SS. The fact is that SS is PayGo. It has a revenue base, it spends more than it takes in, the Treasury makes up any shortfall by issuing more debt. If this reality were the basis of looking at SS (versus goofy TF accounting), then there would be no infinite future issues.

 

- The date of exhaustion of the OASDI TF will be shortened by 2 years to 2031. This means that anyone 47 or younger is paying “full price” for a benefit that will be worth only 75 cents on the dollar. That is how the law is currently written; I keep wondering when younger workers will wake up to the realities of what they are paying for.

 

- The SSTF will recommend that either payroll taxes go up by 2.5%, or that all current and future benefits get cut by 2.5% (or some combo). These recommendations would require an immediate change to achieve the desire long term stability of SS.

There is note a chance in hell that anything like that will happen. Washington can’t agree to a change in benefits that amounts to .3% a year. There is no way that an across the board cut could be agreed on. More payroll taxes are not going to happen either. They are regressive, so liberals don’t like them and conservatives will just say “no” to higher taxes. Either of the options would be a drag on the economy, so nothing will happen.

 

- The “drop-dead” date for the Disability Fund will be revised to the 4th quarter of 2015. In 30 months all DI benefits will be cut by 30%. Again, that is current law.

I think the TF report will make it clear that a fix for the problem with DI must be addressed ASAP. Nothing will come from that plea; the fix on DI will be resolved a week before the drop dead date.

 

- There will have to be significant downward YoY adjustments in interest income that the TF will earn. It’s the Fed’s policy to starve SS. ZIRP and QE will “cost” SS $500b in lost income in the 2008-2018 period. The deterioration at SS in 2012 will largely be attributable to the realities of the Fed’s policies.

 

- The combined OASDI Funds will “top out” in 2017, the peak of the Funds will be ~2.85T. This milestone is coming much sooner than had been anticipated a few years ago. The maximum size of the TF will be smaller than what has been assumed.

The reality is that the Baby-Boomers did not “save” enough to cover their cost. The Boomers will come up ‘short’ by at least $1T. The day that they will be hitting the principal of that ‘savings’ is coming 5 years sooner than hoped for.

 

- The Report will contain all sorts of economic projections. (There might also be changes in mortality rates.) There are dozens of ways to push numbers back and forth. One of the more significant variables is the Labor Force Participation Rate (LFPR). In May of 2013 the USA is facing the lowest LFPR in decades. The SSTF has assumed that this will reverse course and move substantially higher over the next five years, and remain at higher levels forever. If the SSTF does revise downward its assumptions on the LFPR it will have significant consequences to the long term health of SS. I do not think that the necessary changes will be made, an unrealistic assumption will be used again.

I expect an overall “Blue Skies” set of assumptions in the SSTF report to Congress. There will also be an analysis that is referred to as “High Cost”. This set of numbers will be ignored by the main stream media, but these numbers will be closer to what is coming for SS.

 

-There will be ZERO discussion in the TF report to Congress on the most critical short-term issue that SS faces – Immigration Reform. I study these things, and I can’t give you an idea what will happen to the economics at SS when there are new immigration laws. There is no data available to draw a definitive conclusion as yet. The TF report should address the uncertainties (or at least provide some numbers that could be studied), but it won’t.

The consequences to SS regarding changes in immigration range from good, to neutral, to bad. SS has previously disclosed that it has collected hundreds of billions from illegal SS cards. My estimate on the amount involved is +$300B that has been collected and retained by SS. What will the resolution of this be?

 

* The new immigration laws could say that any prior contributions are lost – that is the “penalty” that must be paid. This would be a windfall to SS.

* The law could be written in a way that would recognize those prior contributions, and allow them as “credits” to the individual’s benefit calculations. This would result in significant additional liabilities for both the DI and the Retirement Funds.

 

For wonks like me, the annual report is something to look forward to. For the 99.0% of Americans who have no idea what is at stake, it will be another ho-hum. SS is the largest source of government spending and the biggest source of tax revenue. It’s not financially sound – the report will reconfirm that. The upcoming report will make for some splashy headlines for a few days, and then it will be forgotten. D.C. has neither the guts nor the desire to take on what is America’s biggest economic problem.

 

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DO YOU BELIEVE THE CBO?

4 comments

Posted on 7th March 2013 by Administrator in Economy |Politics |Social Issues

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In 2000 the CBO projected our national debt to be paid off by 2010. They are about as accurate as an NAR economist with their projections. Whenever you hear someone reference the CBO as a neutral non-partisan organization, remember this fantastic takedown by Bruce Krasting. The CBO works for the Washington ruling class. Their job is to give the appearance of substance to the fake numbers produced by the corrupt politicians in Washington. This is a must read as it annihilates the bullshit from the left wingers about deficits declining in the next few years. It’s nothing but lies and disinformation packaged by the CBO for their masters.

Experts on the Deficit

 
Bruce Krasting's picture

Submitted by Bruce Krasting on 03/07/2013 13:40 -0500

Consider two components of the discretionary spending budget; (1) Food Stamps, and (2) the Earned Income and Child Credits.

1) Food Stamps cost the government $82b in 2012, up from $25b in 2003 (325% increase).

2) The Earned Income and Child Credits cost $80b, up from $33b in 2003 (240% increase).

These two categories of spending represent 12.5% of all discretionary spending. These costs go up when the economy is weak, they have never declined.

Now put your economist hats on and project what these two drivers of the budget will be in 10-years. Keep in mind that in a decade the cost for everything, especially food, will be much higher due to inflation. What’s your guess?

According to the CBO the cost of Food Stamps and Child Credits will actually fall over the next ten-years. The CBO believes that Food Stamp costs will be 11% less than today, while Child Credit costs will fall by 3%.

Surprised by that result? I was. Do you believe that these cuts will be realized? I don’t. It would take an economic miracle to achieve those results. The CBO is counting on that miracle happening. The CBO forecast is for uninterrupted growth in the economy. A few of the key variables that the CBO is hanging its hat on:

 

GDP in the USA is about to soar. 2013 will be so-so, but 2014-2016 will be a rip snorter, After the big surge in growth the economy will stabilize at at steady 2+% growth rate. The CBO is forecasting perfection:

 

Screen Shot 2013-03-06 at 8.56.41 AM

 

With the great economy, unemployment will fall like a rock – any day now.

 

Screen Shot 2013-03-06 at 8.56.51 AM

 

Even with all of this good stuff happening, there will be no inflation!

 

Screen Shot 2013-03-06 at 8.57.55 AM

 

Labor income, as a percent of GDP has been falling for the past forty years! The CBO is forecasting that this trend will not only stabilize, but it will make a huge recovery. And this is going to start any minute now!

 

Screen Shot 2013-03-07 at 9.41.05 AM

 

The CBO assumes there will be no recessions. Imagine that! Fifteen-years of uninterrupted growth is projected. The CBO has concluded that the business cycle is over. It thinks that governments have finally figured out how to avoid the laws of gravity. History tells a different story.

 

FRED_edited-1

 

With all of the great stuff going on in the economy, interests rates will shoot higher. The move up in rates is going to start next year! Forget ZIRP. Forget QE. Forget the Fed. The Fed Funds rate is going to 4.5%(36Xs higher than today). At same time, the long end of the curve is going to get back to 5.5%! The CBO believes that long rates (AKA mortgage rates) are going to triple. This explosion of interest rates will have no, repeat no negative consequences at all! Housing and the economy will continue to boom even though mortgage rates are going back to 7%!

 

Screen Shot 2013-03-06 at 8.57.34 AM

 

One more piece of the beautiful pie that CBO has created; there will be no OCO costs in the next decade. OCO – Overseas Contingency Operations – is the code word for war. No more of that stuff in our future!

 

I don’t think that the CBO should be in the business of forecasting wars and recessions. That would be an impossible task. But the assumptions used and the conclusions drawn by CBO will not be realized. Fairyland doesn’t exist, and the business cycle is far from dead. As a result, the economic future will not be as bright as CBO has presented.

 

When you put all of the pieces of the CBO forecast together you get a trajectory of future deficits/debt that looks manageable. After exploding higher the past five years, the red ink is going to stop. The US debt levels are going to level off. The good news is that big improvement is scheduled to start in just a few months!

 

Screen Shot 2013-03-07 at 9.51.37 AM

 

I”m not denying that the US economy has stabilized. The 10% deficits we saw in 2009 will probably not be repeated any time soon. But I don’t see how all of the good things the CBO is anticipating can happen. The problem with the CBO’s optimistic outlook is that it has given ammunition to those who would love to ramp up discretionary spending.

 

BU1

 

BU2

 

fdl

 

HUFf post

 

huffpost2

 

krugman

 

nyt

 

realclear politics

 

wapo

 

Of course there will be more business cycles. There will be stock booms and busts. There will be geopolitical issues that force more of the unwanted OCO. There will be commodity shortages and weather chaos. Other key economic areas of the world will have their ups and downs too. All of these things have happened in the past. They will happen again.

When things do go wrong, the deficits will jump higher than CBO’s projection. With the deficits, the debt will be much larger than assumed. What bothers me is that those who are now pushing the story that deficits aren’t a problem, are the same ones who will be crying, “We never could have seen that happening”, when the SHTF again.

 

Bernanke, Geithner, Greenspan and many economists like Krugman have all said they missed the dark clouds that were forming in 2006-2007. One of the reasons they all missed the signs was that CBO was telling them that the base case for the economy was blue skies ahead. From the 2006 CBO report.

 

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The CBO never saw 2008 coming. Its projections for debt were way off the mark, about 250%:

 

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Expert

 

TRUST THE CIA

11 comments

Posted on 24th February 2013 by Administrator in Economy |Politics |Social Issues

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I’m sure SSS can verify the accuracy of these numbers.

On the Global Numbers – CIA Edition

Bruce Krasting's picture

Submitted by Bruce Krastingon 02/24/2013 09:00 -0500

 

cialogo

 

The CIA has some new 2011/2012 numbers for the world’s economy. These numbers are as “good” as the countries who post the individual data, so it’s safe to be suspect. That said, I found them interesting.

 

There’s 7B of us. I love the CIA’s precise estimate.

 

population_edited-1

 

Only 47% of the population is in the workforce. 28% of the population is under 14 years of age, 8% is older than 65.

 

laborforce

 

Of the 3.3 potential workers, fully 9.2% are unemployed.

 

unemployment

 

I was surprised to see that the global unemployment rate had risen in 2012 by .8%. That’s a big change, It comes to an additional 26m people. Overall, some 300m people are looking for work. The numbers are big, the direction is bad. There is a case to be made about political stability with this many people not working.

The estimate for the USA is that 13m people are now unemployed. The US share of world unemployment is 4.3%, while US population is 4.4%. In other words, the US is right in the middle of the pack on unemployment. Not bad for the leading industrial economy……..

 

2012 was a so-so year for global growth, down YoY and down significantly from 2010.

 

gdp

 

The CIA measures total GDP, it came to a whopping $83T in 2012. The US share is 19%.

 

gdp

 

Global GDP rose $2.2T in 2012. How did that happen? Easy, more debt, money and inflation. The stock of money rose $6.1T, about 3Xs the increase in GDP. Given this, why is gold falling?

 

moneystockfinal

 

Where did all the new money come from? Debt, of course. Domestic and cross border debt marched ever higher:

 

domesticcredit

 

external debt

Domestic debt rose by $5.1T, while cross bordered indebtedness rose $5.4T. Total debt is up by $10.5T while GDP rose only $2.2T. From this I conclude that it takes $1 of debt to produce a measly 20 cents of growth. Who was it that said that debt was an efficient stimulus for growth? There is no evidence of that in the CIA numbers.

 

The world is running a budget deficit. The government deficits increased by 3.8% (Vs. GDP of 3.3%) and by $2.7T (Vs. $2.2T of real growth). On balance, for each $1 increase in government debt, GDP rose by 80 cents.

 

budget surplus

 

budget

 

Total government debt as a share of GDP is now at 65%.

 

publicdebt in percent

The large deficits are happening even though global tax rates are high. There is not much blood to be had from the taxpayer’s stone:

 

taxes

 

Inflation was tame in 2012. With all that money sloshing around, one would think that the inflation numbers have to be headed higher.

 

inflation

 

 

The CIA data for 2012 is a mixed bag. There is no crisis at the moment, but there are troubling signs:

 

- Unemployment is dangerously high, social problems will be the result.

-Global growth is occurring as a result of ever higher debt loads, and a rapidly expanding money supply. Total debt is rising much faster than economic output. Every year we get more leveraged. The “efficiency” of debt is waning.

-Inflation is not a big issue today, but there is every reason to believe that this can’t be sustained.

 

 

Spy versus Spy

Spy1 Spy2

 

LET’S GO CLIFF DIVING

35 comments

Posted on 6th December 2012 by Administrator in Economy |Politics |Social Issues

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I agree 100% with Bruce. Obama doesn’t care about the fiscal cliff. He cares about increasing his power. He doesn’t care about fixing the long-term problems that confront this country. He cares about winning the House of Representatives in 2014. His political calculation is probably correct. The Republicans will get blamed if we go over the cliff because the non-thinking morons in this country actually believe taxing the top 2% more will solve our financial problems. Obama thinks he is the smartest guy in the room. He doesn’t see the possible unintended consequences of his little game. He actually thinks deficits of $1.4 trillion per year don’t matter. It’s almost as if this was meant to be. Fourth Turnings need a catalyst to start the regeneracy phase. The ultimate financial collapse triggered by this cliff dive and the full implementation of Obamacare in 2013 fit the description.

I’m all for it. Let’s go cliff diving bitchez!!!

 

 

Call the Bluff

 
Bruce Krasting's picture

Submitted by Bruce Krasting on 12/06/2012 08:29 -0500

 

 

I damn near fell of my chair (laughing) yesterday watching Timmy Geithner on CNBC. When asked if the President was willing to go over the fiscal cliff if the tax RATE on the top 2% were not increased, the Treasury Secretary snapped back, “Absolutely”.

 

Maria Bartiromo was also floored by this; she spent the next hour telling the world she thought Geithner’s position was clear evidence that the US would be going over the cliff. She had big shot Senator, Richard Shelby (R- Al) on air. She showed him the clip with Geithner making an ass of himself; the Senator looked like he had swallowed a wad of tobacco while he watched.

 

I was convinced that Geithner had made a blunder, a slip of the tongue that would later be clarified or retracted. Not the case. Last evening, Treasury put out a Blog about what a great job Tim did on TV (link). I took this as a confirmation that Geithner did not make a gaffe on air, his words were carefully chosen. When he said he was “Absolutely” certain that falling off the cliff was in our future if tax rates don’t go up, he meant exactly what he said.

 

 

Given that Geithner will be out of his job running Treasury soon, I’m sure that he went on TV with the blessings of Obama, and he had a scripted message from the President. There will be no negotiations on tax rates, the top rate is going to 40%, or we will be sailing off the cliff. What an idiotic bargaining position.

 

At this point, I don’t think there is any significant opposition to increasing tax revenue from America’s wealthiest folks; the question is how to achieve it. Raising marginal rates is one option; cutting deductions can accomplish exactly the same thing. Geithner and Obama will not consider adjusting deductions; the reasons are a mystery to me. It appears that the President wants to “punish” some folks rather than to find a compromise that achieves the desired results.

 

So I agree with Bartiromo, unless the President backs off, we are going cliff diving in 20 days.

 

I believe the President has started a war, No real bullets or sabers in this war, but there will be casualties none-the-less. The question is, “Who is going to get hurt?” The thinking by all of the pundits is that a fall of the cliff will fall squarely on the shoulders of Republicans. If they stand up to the Administration on tax rates, the Republicans will get slaughtered in the Congressional elections two years from now.

 

The facts force me to conclude that Obama is, in fact, using the cliff negotiations to bend Republicans over and force them into submission. The goal is to destroy the Republicans, and have the House, Senate and the White House all Democratically controlled in twenty-two months. Harry Reid would be in charge of the Senate, Nancy Pelosi would be running the House, and the President would have the last two years of his administration with the government controlled by “friendly” hands. A disaster in the making.

 

If tax rates go up on the wealthy, as the President has demanded, then it will generate approximately $68B per year. Every year, taxpayers take advantage of $1.1 Trillion of deductions. Minimizing/eliminating deductions could easily achieve the same revenue increases that Obama wants. Nor would not be difficult to target the limitations on deductions to those who are enjoying high incomes. What the President wants can be achieved without raising marginal tax rates. So what is the problem?

 

In my simple mind there is no reason not to consider attacking the problem by limiting deductions. Therefore, I conclude that politics is the problem. The President does not want to solve the cliff or the budget; he wants to punish Republicans.

 

Two states, California and New York make up 20+% of GDP. These states have a big say in the makeup of the House, they have the biggest electoral votes. They have been solid supporters of Obama with both money and votes. And now Obama is going to piss on them.

 

Income taxes in lovely California are now at an economy numbing 13%; NY is slightly behind the idiocy in California at 9%. If Obama gets his way, the combined tax bite on income will be 52.5% in Cali and 49.5% in NY. Add to this mess the 3% surcharge for Obamacare, and the 8% sales tax in these two states. Welcome to Sweden.

 

The chips on the Obama plan fall heavily on NY and Cali. Another big state, Texas, will reap the benefits, as it has no income taxes. Texas is as “Red” as a state can get, so when Obama is saying he is supporting his base, he’s just lying.

 

 

I think the Republicans should call the President’s bluff. Lets take a walk over the cliff; see what happens when we get to the other side. It can’t be much worse than 50%+ tax rates in the most productive states in the Union. Will Republicans get hammered in the bi-elections as a result? Maybe. But one thing is sure, if the President gets his way on tax rates today, and we also have the Republicans lose the House in two years, it sets up the possibility for a return to a more conservative frame of mind for the country when the next Presidential election comes around. If Obama gets his way, the economy will pay the price. In the process, any legacy that Obama might have had will have been converted into something like Herbert Hoover’s. So who is bluffing whom?

 

TAX FACTS vs BULLSHIT BEING SHOVELED BY RULING OLIGARCHS

7 comments

Posted on 25th November 2012 by Administrator in Economy |Politics |Social Issues

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The Obama storyline that we need higher tax rates is complete and utter bullshit. The reason tax receipts are at all-time low as a percentage of GDP is due to the Obama economy. When you encourage and incentivize people to stay on unemployment for 99 weeks and to sign up for food stamps, they choose to not work and not pay taxes. When you layer on regulations and healthcare requirements on the backs of small businesses, they don’t hire new employees who would pay taxes. When you let mega-corporations design the tax system, buy off the politicians, and control the media, they set up operations in Asia employing slave labor who don’t pay taxes in the U.S. These mega-corporations then use their propaganda machines to contend that corporate taxes are too high, even though corporate tax revenue as a percentage of GDP is at all-time lows. The hubris and gall of these corporate titans is breathtaking to behold.

Scraping the existing tax system and substituting consumption based taxes for income based taxes could generate more revenue and bring fairness and visibility to how we fund our country. Politicians, mega-corporations and the banking cabal do not want simplicity and fairness. They want complexity and a system that benefits them. The grand compromise that will be reached before January 1 will not simplify or improve anything. Its purpose will be to maintain the status quo. So it goes.    

Tax Facts

 By: Bruce Krasting

I took a look at the history of taxes in the USA. A few interesting (to me) factoids. The data comes from the Tax Policy Center (Link); the graphs are mine.

 

I’ve never been convinced that comparisons of the Depression, to today’s economic conditions, are valid. It was a different economy back then, with a much smaller government. Consider the following that plots taxation as a percent of GDP during the 1930s and 2008-12.

 

 

It took a world war to end the Depression, and that period was marked with very low taxes. People argue that taxes are too low today, maybe, but they are already 6Xs what they were the last time the SHTF.

 

 

I think the “modern economy” started around 1950. By then, the distortions from the Depression and WWII were unwinding. In addition, Social Security taxation became a meaningful percent of total individual taxation. The following charts look at the components of taxation from 1950 – 2012; the information is presented by President, the tax rates are the average for the respective tenure:

 

 

 

 

Some observations looking at this:

 

- I’ve read the arguments that tax rates in the 50’s were very high and the economy did just fine. Not true at all.

 

- The Clinton years are also pointed to as a period where income tax rates were high, and the economy did very well. This is appears to be correct. Marginal tax rates were higher; this contributed to the increase in total tax revenues. In addition, the capital gains that were generated in the late stages of the DotCom boom supported revenues. The bump in income taxes in 2000 was attributable to a hot stock market.

 

 

 

- The Obama years are marked with low tax receipts as a percent of GDP. The reasons for the drop include:  (1) The recession and the drop in payrolls. (2) Losses from investments (houses and stocks) (3) The 2% reduction in Payroll taxes.

 

Corporate tax rates are at historically low levels today. The persistent argument from corporate America is that tax rates are a too high, and must be lowered if America is to compete in the global economy. There is some truth to this argument. The statutory corporate rate is 35%, but very few companies pay this rate.

 

 

 

Federal excise taxes, as a percent of the economy, are  at historical low levels today. This is, primarily, the gas tax.

 

 

I don’t “like” any taxes, but some tax revenue is necessary. I particularly hate all income taxes. I favor taxes on consumption, not wages. If the excise taxes the government collects were doubled to equal 1% of GDP (still historically low), it would generate $1T+ over the next ten-years. Much more than either of the Bush tax cuts that are now up for discussion.

After looking at these charts I conclude:

 

- Social Security taxes impose a very heavy burden on the economy.

- Income tax revenues are low today because of the economy, not the marginal tax rates. Consider the fall off during the past four years versus the Bush era. Marginal tax rates were the same, but tax revenue, as a percent of the economy, fell. It’s the economy, not the tax rates that are the problem. D.C. is focused on the wrong issue.

- It’s well past time that a redo of corporate taxation is made. The system is busted. The end result should be a much lower marginal tax rate to insure competitiveness, but also a minimum tax rate that also insures some fairness, and higher net tax receipts.

- Excise taxes have to go up. Sorry.

 

 

posted by Bruce Krasting

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